Section 15 in The Companies (Cost records and audit) Rules, 2014
15. Packing Expenses.-
(a)Proper records shall be maintained separately for domestic and export packing showing the quantity and cost of various packing materials and other expenses incurred on primary or secondary packing indicating the basis of valuation.(b)The packing material receipts should be valued at purchase price including duties and taxes, freight inwards, insurance, and other expenditure directly attributable to procurement (net of trade discounts, rebates, taxes and duties refundable or to be credited) that can be quantified at the time of acquisition.(c)Finance costs directly incurred in connection with the acquisition of packing material shall not form part of packing material cost.(d)Self-manufactured packing materials shall be valued including direct material cost, direct employee cost, direct expenses, job charges, factory overheads including share of administrative overheads comprising factory management and administration and share of research and development cost incurred for development and improvement of existing process or product.(e)Normal loss or spoilage of packing material prior to receipt in the factory shall be absorbed in the cost of balance materials net of amounts recoverable from suppliers, insurers, carriers or recoveries from disposal.(f)The forex component of imported packing material cost shall be converted at the rate on the date of the transaction. Any subsequent change in the exchange rate till payment or otherwise shall not form part of the packing material cost.(g)Any demurrage, detention charges or penalty levied by the transport agency or any authority shall not form part of the cost of packing materials.(h)Subsidy or grant or incentive and any such payment received or receivable with respect to packing material shall be reduced from cost of the cost object in the financial year when such subsidy or grant or incentive and any such payment is recognised as income.(i)Issue of packing materials shall be valued using appropriate method as per the provisions contained in the accounting standard applicable for the time being in force.(j)Wherever, packing material costs include transportation costs, determination of costs of transportation shall be in accordance with paragraph number 9 on determination of cost of transportation.(k)Packing material costs shall not include imputed costs.(l)Where packing materials are accounted at standard cost, the price variances related to such materials shall be treated as part of packing material cost and the portion of usage variances due to normal reasons shall be treated as part of packing material cost. Usage variances due to abnormal reasons shall be treated as part of abnormal cost.(m)The normal loss arising from the issue or consumption of packing materials shall be included in the packing materials cost.(n)Any abnormal cost where it is material and quantifiable shall be excluded from the packing material cost.(o)The credits or recoveries in the nature of normal scrap arising from packing materials if any, should be deducted from the total cost of packing materials to arrive at the net cost of packing materials.(p)Packing material costs shall be directly traced to a cost object to the extent it is economically feasible.(q)Where the packing material costs are not directly traceable to the cost object, these may be assigned on the basis of quantity consumed or similar measures like technical estimates.(r)The packing material cost of reusable packing shall be assigned to the cost object taking into account the number of times or the period over which it is expected to be reused.(s)Cost of primary packing materials shall form part of the cost of production.(t)Cost of secondary packing materials shall form part of distribution overheads.
